The Risk is Yours in Telecom ContractsThe Risk is Yours in Telecom Contracts

The enterprise should be aware of the risks it accepts, as well as those that can be negotiated when signing telecom contract agreements.

A contract is supposed to be a legally binding embodiment of two parties' agreement about their rights and duties to each other. However, telecom contracts can be so complex and hard to understand that many enterprises just agree to the terms and conditions without really knowing their responsibilities and the penalties when the enterprise falls short of the agreement. The risk is on the enterprise, and the telecom provider really holds all the cards.

Telecom contract risk was one of the major topics presented at the Center for Communications Management Information's (CCMI) Telecom Negotiation Conference recently in Washington, D.C by the telecommunications and technology law firm Levine, Blaszak, Block & Boothby, LLP (LB3) and the consulting firm TechCaliber (TC2).

One panel, consisting of LB3 partners Hank Levine and Janine Goodman, along with TC2 consultant Julie Gardner, discussed a series of what could be called "unfair" contract provisions. These are part of the carriers' boilerplate agreements, but savvy customers know they can--and should--be changed. Not all of these risks can be mitigated by judicious negotiations with the telecom carrier/vendor/provider. The enterprise should be aware of the risks it accepts, as well as those that can be negotiated when signing telecom contract agreements.

Some terms and conditions are so obscure that the contract language can only be deciphered by a lawyer. Even then, it may not be apparent what the contract says. Here are some thoughts covering the risk sections of a contract.

Compliance Requirements--The provider should comply with all the applicable laws and must have the appropriate licenses in place and current. Providers will have subcontractors and affiliates, therefore these subcontractors and affiliates are the responsibility of the provider. Laws and regulations like GLB (Gramm Leach Bliley), HIPAA, and others must be the responsibility of the provider and enterprise, not just the enterprise.

Confidentiality--There is typically contract language in the carrier's boilerplate that effectively allows the provider to share all of the enterprise's information, including the enterprise's customer's information with provider agents so they can sell more services. Read this provision carefully before you agree to the terms; you may want to change it.

Indemnification--This clause is like an insurance policy. You may not think it is necessary. An example is a claim by a provider subcontractor or a claim for infringement of a patent or copyright when the infringing technology is part of the provider's service and is not the fault of the enterprise. Another possibility is a claim against the provider for the transmission of unlawful communications. These clauses may have enough exclusions as to make them useless to the enterprise. Ensure that the indemnification clauses are mutual, not one-sided to the benefit of the provider. Further, the indemnification clauses should be excluded from limits of liability. Run this by your General Counsel.

Limits of Liability--There are common flaws in the liability contract arrangements:
* Failure to exclude subjects such as indemnification and confidentiality
* Low liability limits
* Are there limits tied to payments of a particular service?
* Does the provider seek undo rights elsewhere in the contact?
* Do the limits of liability apply only to the provider and are they small or only paid as a credit?

Discontinuation of Service--Services are not guaranteed to last forever. Consider the cancellation of frame relay and DSL services with little notice or recourse. Ensure that all the services in the contract have reasonable cancellation notice clause, e.g., 180 days. Be careful, components of a service may be dropped, effectively cancelling the service in its present form.

Force Majeure--This is for acts of God, not for acts of the provider's subcontractors, affiliates or agents. This should be mutually covered for both the provider and enterprise.

Some other points are:
* How long does the enterprise have to wait before cancelling a service the provider cannot deliver?
* What are the enterprise’s rights to migrate to another service when a disaster occurs?
* Enterprises should understand that providers limit their disaster/recovery obligations and will not pay for disaster/recovery when the service restoration is outside their network.

Exit Strategies--There should be enterprise choices to terminate the provider services if:
* The provider does not deliver the services under the contact.
* The provider makes technology changes that are undesirable to the enterprise.
* Regulatory approval for the provider service is denied or withdrawn.
* If the Service Guide is changed to the point where it is now harmful to the enterprise, the enterprise should have the option to terminate service. (The Service Guide covers a wealth of terms and conditions.)
* The enterprise should be allowed to terminate other services as well if a key service to the enterprise is cancelled.

Every contract has an expiration date. Plan for it. Develop migration plans if the contract negotiations are not favorable. Keep up with regulations like the Inter-Carrier compensation rules which are changing and can affect the provider charges. The enterprise also needs an exit clause if the provider goes bankrupt, is acquired or the services in the contract are sold to another provider.